Lenders take charge of South Waterfront condos

Bruce Ely/The Oregonian The 214-unit Atwater Place is one of Portland's priciest condominium addresses. The building's lender has taken primary control of the South Waterfront tower amid lagging sales.

Portland's two most prestigious real estate developers have lost primary control of two condo towers in Portland's South Waterfront district after sales collapsed in the housing crisis.

Gerding Edlen Development Co. and Williams & Dame Development built and marketed the John Ross and Atwater Place as part of a massive riverfront urban renewal project fueled by $125 million in taxpayer money for public works projects.

After developers fell behind their sales schedules, lenders exerted their power to take more control over sales at both buildings. The two developers remain involved in the projects.

South Waterfront's troubles aren't unusual in a recession where credit is as hard to come by as a brunch table on a sunny Portland Sunday. Regional home prices through June were down 17 percent from their 2007 peak, and the city's skyline is lined with buildings in trouble.

One major condo project, the Waterfront Pearl, has gone back to the bank in a foreclosure. A lender sued the owners of the iconic KOIN Center claiming they missed a mortgage payment. And a new glassy downtown office building is searching for its first tenant.

What makes the South Waterfront unique is the size and scale of the developers' and the city's 30-story ambition, their incredibly unlucky timing and the riverfront view into the nation's economic malaise.

The John Ross and Atwater Place have not gone into default or foreclosure. But the lenders' moves do give them more control over the projects' key decisions.

Public records show the companies that own the buildings are now located in the lenders' out-of-state offices. It is the lenders, not the developers or their real estate brokers, who now sign sales documents.

Mark Edlen, Gerding Edlen's managing principal, said only that the developers continue to help sell the buildings.

Real estate broker Patrick Clark, whose company has sold all of South Waterfront's new condos, said the homeowners associations, maintenance and marketing budgets will continue to be funded by the owners until all units are sold.

For potential buyers, he said, "nothing has changed. The buildings are still supported."

Bright start in 2003

Gerding Edlen Development and Williams & Dame Development launched South Waterfront on the front end of the housing bubble in 2003.

They set out to turn the former industrial wasteland into a taller version of the Pearl: a vibrant neighborhood of condos, shops and easy river access.

The real estate market still cooked when sales opened on the first tower, the Meriwether. Homeowners and investors, lubricated by loosened lending standards, snapped up units.

When sales opened in 2005 for the second tower, 222 people jumped to reserve their spots in the 31-story John Ross.

Based on that success, the developers launched construction on the third project, Atwater Place, then a fourth.

Then the market toppled.

The pool of buyers dried up as mortgage banks tightened lending standards.

Dozens of people who reserved John Ross units backed out. Through July, the John Ross had closed 186 sales. That's 61 percent of the building's 303 units, according to the firm selling the building, Realty Trust City.

Atwater Place, the third tower, is one of the city's most exclusive addresses. But high-end real estate sales are especially sluggish in Portland and nationwide. Sales have closed on 57 of the building's 214 units since November 2007.

South Waterfront's fourth tower, built by the same developers, switched from condos to apartments in May 2008.

Recently, developers turned more optimistic after sales picked up a bit from winter lows. But the sales are coming at deep discounts. At the John Ross, listed prices were dropped 35 percent from a year ago -- twice as deep as the fall in the region's median price during the same period.

John Ross condos run about $350,000 and Atwater Place condos about $700,000.

Within South Waterfront's three condo towers, about one-third of the 760 condos remain unsold by the developers. Among the condo buyers, 27 have defaulted on their mortgages, county records show.

San Francisco dentist Greg Ganji was among 14 John Ross buyers to default. In 2005, before the building opened, he put a deposit down on a $335,550 condo. He later tried to flip it for a $40,000 profit but couldn't find a buyer.

In late July, Ganji said he sold the unit for $210,000, 37 percent less than he paid for it.

They don't like the bad PR while they're still selling units. If they take control of a project, lenders tend to do it quietly.

Lawyers and real estate investors say it's become routine for lenders to employ a "soft receivership." The lender doesn't record a foreclosure in the publicly accessible property records. But the bank sometimes takes over the company that owns the building.

That's what happened on the last two South Waterfront projects still in sales mode.

The John Ross and Atwater Place had been controlled by corporations with connections to Gerding Edlen Development, according to state business license records and county property records. Gerding Edlen Development's representatives previously signed sales deeds, according to county records.

But that has since changed.

At Atwater Place, Edlen's company connections were removed in October from the business license for the building's legal owner, Block 34 Investors LLC.

Instead, Block 34 Investors' day-to-day manager is an unlicensed business whose headquarters are listed at the Southern California offices of Westport Capital Partners LLC -- a lender on the project.

State records show that Scott Chernoff and Sean Armstrong, both principals at Westport Capital Partners LLC, became the president and vice president, respectively, of Block 34 Investors. Chernoff and another Westport principal have started signing sales documents for Atwater Place, according to county property records.

Chernoff didn't respond directly to questions about who controls Atwater Place. He e-mailed that the developers continue to help on "various matters relating to sales and marketing of the Atwater."

He said the project's original construction loan had been paid down from $91 million to about $40 million. "Unlike many other condominium projects," Chernoff wrote, "Atwater Place is on solid financial ground."

In March, Edlen's company connections were removed from the John Ross' owner, Block 35 Investors LLC, according to state business license records.

Block 35 Investors LLC's headquarters are now in New Jersey offices of the John Ross' lender, Prudential Real Estate Investors, an arm of the Prudential life insurance company.

A Prudential executive in San Francisco, Keysha Bailey, has signed recent sales documents for the John Ross, according to county property records. Bailey did not return a message this week seeking comment.